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UPDATE 2-News Corp taps Liberty for possible Hughes bid

(previous MELBOURNE, adds details throughout)

By Sonali Paul and Sinead Carew

MELBOURNE/NEW YORK, March 28 (Reuters) - Rupert Murdoch's News Corp Ltd may tap John Malone's Liberty Media Corp for $500 million, a deal that could help finance a possible bid for the owner of U.S. satellite broadcaster DirecTV.

The agreement -- which gives Liberty the option to buy $500 million in preferred News Corp stock -- raised the likelihood that the two media moguls would make a joint offer for DirecTV's owner, Hughes Electronics Corp , analysts said. It also cast doubts on Liberty pursuing a separate bid, they said.

"This means the likelihood of it being a highly contested offer diminishes, because it looks like Liberty will be bidding with News Corp," said AMP Henderson analyst John Whiteman, adding that one less bidder could lower the deal price.

Liberty did not return repeated phone calls, but other media quoted a spokesman as saying the U.S. company would not pursue a separate bid.

The bidding for Hughes is expected to heat up later on Friday, when several companies -- including Cablevision Systems Corp. are expected to outline their offers, people familiar with the situation told Reuters.

Both News Corp and Liberty, which already owns 18 percent of News Corp, have considered buying Hughes from General Motors .

The U.S. car maker owns all the assets of Hughes but introduced a separate stock that tracks Hughes' performance. It owns a 20-percent stake in this so-called tracking stock, valued at about $2 billion at current market prices.

WAR CHEST

News Corp on Friday said Liberty had the option to buy News Corp's preferred limited voting ordinary American Depositary Receipts at a price of $21.50 per ADR in the next six months -- a small discount to the $21.63 closing price on Thursday in New York.

If News Corp decided to buy Hughes in the next two years, then Liberty would be obliged to exercise the $500 million option, the companies said.

This would bring News Corp's acquisition war chest to about $4.4 billion.

"It means Liberty recognises News Corp wanted a little more funding to maintain some strength in the balance sheet in the event it does bid for DirecTV," said ABN AMRO analyst Peter Shorthouse in Australia.

Shorthouse estimated that the $500 million investment would up Liberty's stake in News Corp to more than 20 percent.

Besides News Corp and Cablevision, other companies weighing a Hughes acquisition include local telephone provider SBC Communications Inc , people familiar with the situation have said.

If News Corp pulls off the deal, it would give Murdoch a chance to satisfy a a long-held dream to create a global satellite network.

News Corp was already beaten to the post by a DirecTV bid from EchoStar Communications . But the deal proposed by Echostar, a DirecTV rival, failed after regulators gave it thumbs down.

Until recently, when both Liberty and News Corp decided to look at Hughes books separately, the two were widely expected to make a joint bid for Hughes.

Liberty's John Malone told Reuters in an interview earlier this week he expected to make his own offer for DirecTV, but added that he had not ruled out teaming up with Murdoch.

Media conglomerate Liberty has said publicly it is also considering other transactions, including buying U.S. assets of Vivendi or home shopping channel QVC, which it currently owns with U.S. cable company Comcast Corp .

Liberty, which already owns about 42 percent of QVC, said earlier this month that it wanted to cut its ties with Comcast. The companies are currently discussing QVC's valuation after which either could sell their stake or buy the entire company.

In a conference call this week, Liberty outlined to analysts why a QVC acquisition would make sense.

News Corp's Australian shares jumped 2.7 percent to A$11.03 after the announcement in a flat broader market.

There had been some speculation in the market earlier this week that Liberty might sell some or all of its preference shares, said Whiteman.

($1=A$1.67)